April 2010

Nikkei 225 Extends Rally Following Jump in U.S. Employment

Asia Session Key Developments

• Hong Kong Markets Closed for Tomb Sweeping Day
• Australian markets Closed for the Easter Holiday

Asian stocks extended the advance from the previous week after pushing to an 11-week high on Friday as investors held an improved outlook for global growth, while the ASX 200 and the Hang Seng were closed in observance of the Easter Holiday and Tomb – Sweeping Day respectively. Meanwhile, the economic docket was quite overnight with no event releases throughout the region, with the markets looking to resume at 14:00 GMT with U.S. ISM non-manufacturing composite.

Nikkei 225                          11,339.30

Stocks in Japan rallied for a third consecutive day, leading the Nikkei 225 to advance 53.21 points (0.47%) and close at 11,339.30. Six out of the ten components pushed higher on the day, with technology leading the way, climbing 2.16%, while consumer services lost 4.74% to taper the advance. Shares of Fast Retailing, Japan’s largest clothing retailer plunged 10.61% as the company announced a 16.4% drop in sales at its Uniqlo chain, while Softbank Corp rallied 5.1% after the company saw a 4.1% rise in same-store sales during March. At the same time, Kobe Steel surged 6.34% after Vietnam approved plans for the firm to build a new plant, which would cost 100B yen, while Sharp added 3.31% as the firm expects its small screen liquid-crystal displays for handheld devices to be 3-D compatible over the next 12-months.

Hang Seng                        21,537.00

Closed in observance of Tomb – Sweeping Day.

S&P/ASX 200 Index           4,907.70

Closed in observance of Easter.

U.S. Equity Markets Closed for Good Friday

U.S. Session Key Developments

•    U.S. Economy Adds Most Jobs In Three Years
•    Stock-Index Futures and Dollar Index Rally, Treasuries Fall
•    Highly Anticipated Apple iPad Debuts This Saturday

There was no lack of economic activity today, despite U.S. Equity Markets being closed in observance of Good Friday.  Stock-index futures, yields on 10-year Treasuries, and the dollar all advanced after the most influential report of the month showed that employers added the most jobs in three years.  The U.S. Labor Department announced that non-manufacturing payrolls rose by 162,000 in March, prompting Treasury Secretary Timothy Geithner to say, “we’re getting stronger, and the economy is now creating jobs.”  Though the top-line figure came in slightly less than expected, it was nonetheless a strong showing for the U.S. economy.  The unemployment rate remained unchanged at 9.7 percent, the dollar index gained 0.5 percent, and 10 Year Treasury yields rose 8 basis points.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com

Nikkei 225 Extends Rally Ahead of U.S. Non-Farm Payrolls on Growth Optimism

Asia Session Key Developments

• Japan’s Monetary Base Extends 18 Month Advance
• Asian Stocks Rally to 11 – Week High

Asian stocks pushed to a 11-week high ahead of U.S. non-farm payrolls as market participants held an improved outlook for the world’s largest economy, while the ASX 200 and the Hang Seng were closed in observance of Good Friday. Meanwhile, the economic docket in Japan showed that the region’s monetary base extended its 18 month rise, with the reading climbing 2.1% in March after widening 2.2% the previous month.

Nikkei 225                          11,286.09

Stocks in Japan extended yesterday’s advance, leading the Nikkei 225 to rise 41.69 points (0.37%) and close at 11,286.09. Seven out of the ten components pushed higher on the day, with oil & gas leading the way, climbing 3.50%, while telecommunications lost 0.81% to taper the advance. Shares of Toshiba rallied 3.49% after the Nikkei Newspaper said the chip maker could launch mass production of NAND flash-memory chips by 2012, while Hitachi Construction Machinery jumped 3.50% as the company expects the economic expansion in India to drive operating profit 13 billion yen higher in the year through March 31, 2014. At the same time, Sharp, Japan’s largest maker of liquid – crystal displays added 2.72% as Barclays Capital raised its outlook for the stock to “equalweight” from “underweight,” while Pac Metals edged 0.75% higher on the back of higher commodity prices.

Hang Seng                        21,537.00

Closed in observance of Good Friday

S&P/ASX 200 Index           4,907.70

Closed in observance of Good Friday

Notable Asian Session Event Risk / Economic Releases

U.S. Equities Continue Ascent on Strong Manufacturing Data

U.S. Session Key Developments

•    Manufacturing Increased in March at Fastest Pace Since 2004
•    Construction Spending Declined For a Fourth Consecutive Month in February
•    Commodities Generally Higher As Dollar Index Falls

U.S. stocks and commodities rallied in tandem today on a better-than-expected ISM manufacturing reading.  The Institute Supply Management’s index rose from 56.5 to 59.6 in March, helping boost stocks and push the S&P 500 higher for a third time this week.  The manufacturing gauge soundly beat economists’ expectation for a rise to 57 and gave investors hope that American factories could help strengthen the global economic recovery.  In addition to boosting stocks, the data helped propel commodities higher, including crude oil which pierced the $85 a barrel intraday for the first time since October 2008.  Precious metals also rallied, with gold adding over 1 percent to $1126 and silver futures rising 2 percent to $17.89.  U.S. Dollar weakness also helped to propel metals higher, as the U.S. Dollar Index fell for a second day to 80.776.  The greenback was especially weak against its European counterparts, dropping 0.7 percent against the British Pound and nearly 0.6 percent versus the euro.

DJIA 30                     10,927.07                      +70.44                       +0.65%
The Dow Jones Industrial Average rose to a new eighteen-month high as four stocks gained for each that fell on the index.  Aluminum giant Alcoa was the index leader today, gaining 3.2 percent on the strong ISM manufacturing data for March.  Other stocks posting strong gains on the day included Disney, Caterpillar, and DuPont, which each gained at least 1.8 percent.  Disney shares have been consistently strong over the past six weeks, rising over 22 percent during the time period.

S&P 500                       1,178.10                           +8.67                       +0.74%
The broad-based S&P 500 posted the strongest gain among major U.S. indices, rallying behind a 2 percent gain in basic materials shares.  Mining companies Freeport McMoRan and Newmont Mining helped lead the basic materials sector higher, each adding at least 3 percent on the session.  Oil & gas companies also outperformed the index, as oil prices pierced the $85 a barrel level and natural gas gained 5 percent.  Shares of Pioneer Natural gained 5 percent to lead the S&P’s energy sector, while Cameron, Sunoco, and Tenoso each added 3 percent.

NASDAQ                     2,402.58                         +4.62                     +0.19%
Shares on the tech-heavy Nasdaq posted the worst performance among major U.S. indices as technology stocks declined.  Blackberry maker Research in Motion plunged 7 percent following a downgrade at Goldman Sachs to “sell” from “hold.”  Analysts at the investment bank said that Research in Motion’s products would increasingly lose differentiation as the smart phone focus shifts away from email features to applications.  Rivals Apple and Google gained 0.4 percent and 0.3 percent respectively on the session.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

A Swell in Risk Appetite and Strong Manufacturing Data Drive Crude to New 17-Month Highs

North American Commodity Update

Commodities – Energy

A Swell in Risk Appetite and Strong Manufacturing Data Drive Crude to New 17-Month Highs

Crude Oil (LS NYMEX) -  $85.04 //  $1.28 //  1.53%

Having spent so much time posturing and threatening to forge ahead and break to new highs, crude oil finally overwhelmed its psychological barriers with a rally that drove the market to levels not seen in 17 months. While this drive was clearly driven by a consistent drive in risk appetite, sentiment was itself backed by a promising turn in event risk. Taking stock of the progress made on the different risk-based assets, though, the commodity bloc (and crude specifically) seems to have put in for the most remarkable progress. The Dow Jones Industrial Average managed to confirm an 18-month high on both an intraday basis and on the close; but the index arguably maintained its general congestion pattern. From the currency market, both the dollar and Japanese yen extended their respective retracements to clear technical boundaries to trade back within broader congestion patterns. In contrast, the active NYMEX crude contract rallied for a fourth consecutive session (a move that has covered 6.2 percent). With a burst of momentum early in the European session, the commodity would easily push above $84; and controlled follow through would keep it moving through the end of the US session. Two interesting things to note about this drive from a speculative perspective: first, with this advance, the CBOE crude oil volatility index has dropped to a new two year low. This is a misleading indicator that ignores the directionality component of options. With such an aggressive advance, the probability of a volatile reversal is much higher. Another condition that should not be ignored is that liquidity will be hollowed out tomorrow with the extended holiday weekend.

From technical and speculative conditions to cold-hard fundamentals, today’s advance would find remarkable support from strong wave of fundamental optimism. Beginning with China, a string of manufacturing reports from many of the world’s largest energy consumers would boost the demand outlook for the energy bloc. Most prominent among the activity readings were the US and Chinese factory surveys. The ISM manufacturing report rose more quickly than expected to a five-and-a-half year high while the world’s second largest energy consumer marked a 13th consecutive month of growth in factory activity. In between, surveys from the UK would hit a 15-year high, while the Euro Zone version hit a three-year high. Considering the most energy-intensive sectors of the world’s largest industrialized regions are trending to new highs, the demand gap looks as if it may close sooner than many had feared. On the other hand, it is important to keep a realistic assessment of just how broad the output and consumption disparity happens to be. Not only did the US Department of Energy’s numbers show a ninth consecutive weekly increase in crude holdings (the longest series since May) to a push overall stockpiles to a nine-month high, refinery capacity is still holding at 82.6 percent. This is a lot of utility to absorb. The disconnect in this question is a lack of demand from the world’s consumers. A true recovery rests with this essential sector; and their demand for processed fuel can make or break a long-term trend in crude prices.

Commodities – Metals

Gold Breaks from Congestion on a Dollar and Risk-Derived Rally

Spot Gold -  $1,125.90   //  $12.65 //  1.14%

While not quite enjoying the forceful breakout that crude or even silver would produce, gold nonetheless put in for a remarkable rally Thursday that would overwhelm an unmistakable descending, congestion pattern. Once again, the precious metal’s various function would get in the way of its own strength. With risk appetite finding enough strength to establish a visible trend with most of the sensitive asset classes, gold would follow suit with a fundamental driver that has fallen to the wayside amongst its traders in recently weeks. Where would this drive in sentiment come from? The market has been slanted towards yield building for some months now; but with a few key breakouts and abnormal pre-holiday trading conditions infecting price action, the trigger would fall into place. However, it is important to compare and contrast a move like that in gold with one like crude. The latter has cleared all over head and now easily trades at 17-month highs. In contrast, the metal is still within general congestion and the daily advance wasn’t particularly outrageous. This comes from latent positions as both a safe haven asset and fiat alternative. On the other hand, the dollar-hedge dynamic as well as the inflation pressure today’s manufacturing data added both help to tip the scales. Looking ahead to tomorrow, most commodity exchanges will be closed or will close early, leaving the market exposed to erratic conditions with limited opportunity for meaningful trend.

Spot Silver  -  $17.90   //  $0.42  //  2.40%

One of the few assets that would mark a meaningful and clear breakout on the market-wide surge in risk appetite, silver would easily clear $17.50/65 resistance to trade at levels not seen since January 12th. The refined fundamental backdrop of this particular security has clearly helped to leverage its advance. A rise in risk appetite and drop in the US dollar would offer the best combination for the meaningful drive.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

Asian Stocks Rally Following the Expansion in China Manufacturing, Rising Commodity Prices

Asia Session Key Developments

• China’s Manufacturing Expands for a 13^th Straight Month
• Australia’s TD Inflation Gauge Rises in March

Shares in Asia/Pacific pared yesterday’s decline after investors engaged in heavy profit taking as the expansion in Chinese manufacturing fueled confidence in the global economic recovery. Indeed, crude oil prices rose to a 17 month high on the back of positive market sentiment, while gold rose to its highest price in two weeks. Meanwhile, the economic docket in Australia showed the TD securities inflation index rose 0.5% in March, extending its four month rally and increasing scope for the central bank to raise borrowing costs further. Moreover, Australia’s AiG performance of manufacturing index slowed during the same period, while the RBA commodity index pushed higher for the first time since March 2009. On the other hand, Japan’s vehicle sales jumped 37.2% in March, with the reading advancing for the eighth consecutive month, while China’s manufacturing expanded for a 13^th month, with the index rising to 55.1 from 52.0 in February.

Nikkei 225                          11,244.40

Stocks in Japan pared yesterday’s decline, leading the Nikkei 225 to rise 154.46 points (1.39%) and close at 11,244.40. Nine out of the ten components pushed higher on the day, with consumer services leading the way, climbing 2.24%, while utilities retreated 0.26% to taper the advance. Shares of Nikon jumped 2.74% subsequent to the Nikkei English News stating that the company may report a 4 billion yen second-half operating profit, while NEC pushed 2.49% higher on the day as the electronics maker announced that it now fully owns NEC Philips Unified Solutions. In addition, Toshiba added 0.83% after stating that it will get a $133 million syndicated loan along with Tokyo Electric Power from the Japan Bank for International Cooperation and two commercial lenders, while Yahoo Japan gained 2.94% amid reports by the Nikkei English News stating that the company and China’s Taobao may connect their web sites, which would allow cross-border purchases.

Hang Seng                        21,537.00

The Hong Kong equity market pushed higher on Wednesday, leading the benchmark equity index to advance 297.65 points (1.40%) and close at 21,537.00. Nine out of the ten components rallied on the day, with basic materials leading the way, climbing 2.37%, while technology slid 0.61%. Shares of CNOOC rallied 2.35% after chairman Fu Chengyu announced plans to buy more oil and gas assets to supply China’s surging economy, while PetroChina increased 1.76% as the company, along with Royal Dutch Shell have recently lodged an application with Australia’s Foreign Investment Review, seeking approval for their joint A$3.5 billion acquisition of Arrow Energy. Moreover, Henderson Land Development edged 0.37% higher as Hong Kong’s third largest real estate developer stated that it booked a net profit of HK$14.3 billion for the 18 months ending December 2009, while China Petroleum advanced 3.30% on the back of higher commodity prices.

S&P/ASX 200 Index           4,907.70

Shares in Australia pared yesterday’s decline, leading the S&P/ASX 200 to climb 32.20 points (0.66%) and close at 4,907.70. Seven out of the ten components rallied on the day, with basic materials soaring 2.22%, while health care dropped 0.57% to taper the advance. Shares of Lihir Gold surged 33.33% after the company rejected a A$9.4 billion takeover bid from Newcrest Mining, while MacArthur Coal added 5.84% on the back of higher commodity prices. At the same time, CSR rallied 6.04% as Bright Food Group offered A$1.75 billion for its sugar and renewable energy unit, while Virgin Blue Holdings slipped 1.42% as the company plans to purchase105 new Boeing 737 airplane over the next six-years.

Notable Asian Session Event Risk / Economic Releases

Crude Oil Breaks Out Higher. Will Gold Prices Follow?

Commodities – Energy

Crude Oil Surges Past Resistance But Will Bullish Momentum Last?

Crude Oil (WTI)       $84.57       +$0.81       +0.97%
Prices look to have made a major technical break higher, taking out horizontal resistance at $83.19 to push well above the $84 figure. This opens the door for a move to the top of a large rising channel that has guided prices since mid-2009, now at $91.19. Upcoming US economic data looks supportive of continued upside in Thursday trade, with the ISM Manufacturing gauge set to rise to rebound in March after slipping in the previous month while weekly jobless claims figures track lower. Risk trends point in the same direction, with US equity index futures tracking 0.5 percent higher ahead of the opening bell on Wall St. Still, we remain skeptical of this advance with markets likely positioning themselves ahead of the release of the Nonfarm Payrolls report. The figures are set to cross the wires while trading is closed for the Good Friday holiday, encouraging investors to adjust their positions for the most likely scenario. Indeed, forecasts call for the US economy to have gained 184,000 jobs in March, the largest increase in three years.

Commodities – Metals

Gold, Silver on the Cusp of Bullish Breakout

Gold       $1116.93       +$3.68       +0.33%
Prices are testing above resistance at the top of a falling channel set from the swing high in early March, with a sustained push higher exposing the $1128.91 level. Gold’s function as an inflation hedge remains the primary force behind directional momentum with prices closely tied to the medium-term outlook on US interest rates and inflation. Indeed, the 20-day percent change correlation between gold and 2-year Treasury notes now stands at 0.68, the highest in nearly a year.

Silver       $17.70       +$0.23       +1.30%
As with gold, a breakout higher is being threatened as prices test above resistance at $17.65, with a push higher exposing the $18.00 figure. The outlook for US interest rates and inflation remains the primary catalyst, with the 20-day percent-change correlation between silver and the 2-year Treasury note at 0.64.

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